The launch of spot XRP ETFs triggered excitement among investors, but the XRP price continues to slide despite strong institutional inflows.
Specifically, the Canary Capital XRP ETF (XRPC) made a strong entrance with $245 million in debut inflows. XRPC kept this momentum going over the next several days and drew steady demand for four straight sessions, pushing total inflows past $292 million by day four.
XRP Price Struggles Despite ETF Inflows
On day five, which was yesterday, XRPC added another $12.8 million, raising its cumulative inflows since launch to $305.4 million.
Interestingly, the market saw another boost that same day when the Bitwise XRP ETF, listed as XRP, officially launched. Bitwise attracted $105.36 million on its first day. With both products now trading, total inflows across all spot XRP ETFs reached $410.76 million.
However, instead of rising or holding strong, XRP continues to fall in line with the rest of the crypto market. XRP price has dropped 13.16% over the past week and slipped below the $2 psychological support level, trading at $1.98 as of press time.
Amid the disappointing price action, XRP holders have grown frustrated, especially after waiting all year for these ETFs, questioning why the heavy inflows have not lifted the price.
How ETFs Work
In a recent commentary, community member VanQish addressed these concerns and explained how XRP ETFs actually work. According to him, many investors still misunderstand how these funds buy XRP.
He stressed that an ETF does not operate like a tank that fills or empties at fixed intervals. Instead, the ETF adjusts its XRP holdings in response to demand for its shares. This is largely correct, as ETFs rely on a flexible system that expands or shrinks through creation and redemption of shares, not through a fixed refilling cycle.
Further, VanQish explained that the ETF increases its XRP holdings only when authorized participants create new shares. These participants, usually large financial institutions or market makers, deliver XRP or cash to the ETF sponsor to mint a fresh block of shares.
The process increases the amount of XRP inside the fund. Notably, the participants often deliver XRP directly, since doing so cuts costs and speeds up the process, although cash delivery remains an option.
On the other hand, the ETF reduces its XRP holdings only when authorized participants redeem shares. They return ETF shares to the sponsor and receive XRP or cash in exchange.
This process shrinks the basket of XRP inside the fund. Notably, retail traders cannot redeem shares directly, which helps the system stay efficient and orderly, keeping the ETF aligned with the value of the underlying asset.
Trading on Exchanges Does Nothing for XRP Price
VanQish also pointed out that heavy trading on an exchange does not automatically move real XRP. Specifically, when investors buy or sell ETF shares on the secondary market, they simply trade ownership of the shares.
Actual XRP moves only when market conditions force authorized participants to create or redeem shares. Importantly, this step is what connects ETF activity to real XRP demand.
He also highlighted what happens when an ETF trades at a premium. Notably, if the XRP ETF price rises above the value of the XRP it represents, authorized participants step in to arbitrage the difference.
They arbitrage by buying XRP from the open market or sending cash to the sponsor so the ETF can acquire XRP and rebalance its holdings. Direct XRP delivery usually works faster and avoids extra costs.
When Will XRP Price Start Reacting to ETF Demand?
Considering all these mechanisms, VanQuish noted that the market will see real price movement only when authorized participants can no longer find cheap XRP to meet creation demand.
He said an ETF launch alone does not trigger a rally. Instead, growing creation obligations will force participants to compete for available XRP.
Once the easy supply dries up, a true supply squeeze begins, and that pressure can push prices sharply higher. Notably, Bitcoin price also suffered declines immediately after ETFs launched in January 2024 but recovered weeks later to new all-time highs.
DisClamier: This content is informational and should not be considered financial advice. The views expressed in this article may include the author's personal opinions and do not reflect The Crypto Basic opinion. Readers are encouraged to do thorough research before making any investment decisions. The Crypto Basic is not responsible for any financial losses.
